Early last month, China announced its projected 2014 defense budget of 808 billion yuan (roughly USD 132 billion), a 12.2 percent increase over the previous year. This continues the double-digit spending increases in nominalterms since 1989 (2010 was the exception, most likely because of priorities adjusted in the wake of the global financial crisis). China’s rapid rise in national power across the board and the pace and scale of its increasing investment in the PLA, together with its limited willingness to release a breakdown of how this money is spent, ensure that the annual announcement of its official defense budget for the forthcoming fiscal year attracts considerable attention. Annual multibillion-dollar increases suggest strong interest in furthering core strategic objectives, such as upholding island and maritime sovereignty claims in the East and South China Seas.

By any measure, China already has the world’s second largest defense budget. While US aggregate military spending remains much higher, unlike the globally distributed US military the PLA is focused primarily on its immediate region, while seeking gradually to project military power globally. When thinking about a possible conflict on China’s periphery a comparison of aggregate defense budgets is not especially useful—the potential flashpoints are much closer to China. Fundamentally different US and Chinese military force postures and priorities likewise limit the usefulness of direct comparisons of force structures for assessing relative capabilities for peacetime influence or scenarios in a military conflict: in the Yellow, East, and South China seas and the airspace above them. The PLA has acquired growing numbers of increasingly capable weapons with this proximate theater in mind, as it strives to strengthen its ability to wield them effectively to uphold its unresolved island and maritime claims if the leadership judges it necessary to do so. Yet critical uncertainties remain concerning Beijing’s capabilities and intentions. While China’s limited budget transparency leaves much unknown, this article analyzes what isknown about its military spending and suggests some implications. …